In this course, you will learn all of the major principles of microeconomics normally taught in a quarter or semester course to college undergraduates or MBA students.
Perhaps more importantly, you will also learn how to apply these principles to a wide variety of real world situations in both your personal and professional lives. In this way, the Power of Microeconomics will help you prosper in an increasingly competitive environment.
Note that this course is a companion to the Power of Macroeconomics. If you take both courses, you will learn all of the major principles normally taught in a year-long introductory economics college course.

Enseigné par

Dr. Peter Navarro

Professor

Transcription

[MUSIC]. To further illustrate these concepts of scarcity, efficiency and equity, let's introduce one of the most important tools in microeconomics. The Production Possibilities Frontier. The Production Possibilities Frontier or PPF shows the maximum amounts of production that can be obtained by an economy. Given its technological knowledge and quantity of inputs or resources available. It represents the menu of goods and services available to society. And if a country is operating on its PPF, it is allocating resources efficiently. The important idea behind the PPF is that societies cannot have everything they want. They are limited, not just by their resources, but also by the technology available to them. Therefore, societies must choose between goods, and one of the broadest choices that virtually every country is forced to make is between producing guns vs butter. In particular how much of a country's resources should go to the military, the guns. And how much should go to civilian uses like education and health care and the production of consumer goods like computers and automobiles, that's the butter. To illustrate this choice take a look at this PPF diagram for the mythical country of Tough Choice. In the figure, butter production is represented on the horizontal axis and guns production is represented on the vertical axis. If the leaders of tough choice were to use all the country's resources to produce butter, it would produce five million pounds. And be at point F in the figure given its current technology. Alternatively, if Tough Choice were to produce only guns, it would be at point A, or 15,000 guns. Now, between these two extremes of only butter and only guns, Tough Choice also can produce many combinations of guns and butter. As illustrated by points B, C, D, and E in the figure. For example by foregoing one million pounds of butter production, Tough Choice can increase its guns from 9,000 at point D to 12,000 at point C. In fact, such a movement along the PPF illustrates one of the most important concepts in microeconomics. A concept known as opportunity costs. On the most fundamental level, the opportunity cost of moving from D to C is the butter given up to produce the extra guns. In this example, the opportunity cost of the 3,000 extra guns is one million pounds of butter forgone. In a world of scarcity choosing one thing means giving up something else. The opportunity cost of a decision is the value of the good or service forgone. Indeed because resources are scarce, we must always consider how to spend our limited incomes or time. Now let's put the PPF to work to illustrate some other important ideas. Take a look at this figure. Voters can choose between private goods like autos and houses, bought at a price, and public goods like roads and bridges, paid for by taxes. For a frontier society, like that which is depicted in the figure, the country is likely to be at point A. Because the society lives from hand to mouth with little left over for public goods like super highways or public health. However, with economic growth and technological change, a modern urbanized and more prosperous economy will have a PPF shifted significantly outward relevant to the frontier society. In this case, this society may choose to be at point B, spending more of its higher income on public goods and services, like education, environmental protection, and roads. It's not just what a society chooses to consume that matters, it's also when it chooses to consume it. This figure portrays and economy's choice between consuming goods like autos and watches and tennis rackets now, or investing in machinery and factories. In the figure three countries start out even with the same PPF. However, the Kingdom of Jiminy Cricket, as indicated by A1, does no investment for the future, while the Aristotle Republic invests modestly at A2 And Thriftyland sacrifices a great deal of current consumption to invest heavily at A3. This figure shows what happens over time. The PPF of Thriftyland has shifted significantly outwards, allowing the sons and daughters of Thriftyland's investors to live a more prosperous life. Meanwhile the Kingdom of Jiminy Cricket remains mired at the same standard of living on its original PPF. The important point here, of course, is that by sacrificing current consumption and producing more capital goods, a nation's economy can grow more rapidly. Now let's use the PPF to shed further light on the concept of economic efficiency. Take a look at this figure, which once again illustrates a country's trade off between guns and butter. Note that point D is unattainable given the society's available technology, resources, and labor force. Note also, that point A is an inefficient point, because there is a way to produce more of guns or butter without having to give up any of the other. For a society, the idea that is to stay on the PPF at points like C and B, and that's where microeconomics can be so helpful.